In 2007 the Russian government approved the state-run Development Program for an integrated gas production, transportation and supply system in Eastern Siberia and the Far East, the EGP. China and other Asian-Pacific countries were seen as potential markets. Just this week Beijing and Gazprom signed a memorandum of understanding (MOU) on gas supplies via the eastern route.

The investment in Russia's domestic pipeline network, revealed Tuesday in a document posted on Gazprom's website, will bring the total cost of the South Stream project—aimed at shipping 63 billion cubic meters of gas under the Black Sea by 2018—to $38.4 billion. The offshore and European sections of the pipeline are forecast to cost €16 billion ($21.53 billion).

Russia is building the South Stream pipeline to diversify supply routes to the European Union after disputes with Ukraine led to cutoffs in 2006 and 2009. Russian gas covers about a quarter of Europe's needs.

Analysts have long criticized Gazprom for perceived overspending on pipeline projects. Some analysts question the need for South Stream, given flagging demand for Russian gas in its most lucrative market in Europe.

"It looks expensive and unprofitable, as in the future Gazprom will have to pay for gas transit under 'supply or pay' terms, and it may not fully supply the pipeline," said Raiffeisen Bank analyst Andrey Polishchuk. "It's a risky project. The only reasons to build it are political, to decrease the risks related to transit through Ukraine."

Gazprom and its South Stream partners Électricité de France SA,BASF-Wintershall and Italy's ENI SpA launched construction of the offshore section of the pipeline in December.

12/20/2012

Russia's Gazprom said construction
would begin this week on the underwater section of its South Stream
pipeline, which will carry natural gas beneath the Black Sea and into
the European Union.

But is this really the case?

Gazprom CEO Aleksei Miller announced last month that the final
investment decision for the project had been reached. Miller attended a
groundbreaking ceremony near the town of Anapa on Russia's Black Sea
coast on December 7.

However, asJohnatan Stern,
head of the Natural Gas Research Program at the Oxford Institute for
Energy Studies notes, Gazprom hasn't yet ordered pipe or organized the
lay barge for the pipeline and "cannot start laying the offshore section
until 2014 [at the] earliest."

Moreover, EU officials say a final route has yet to be submitted to
Brussels and likely won't have final approval for at least another year.

RFE/RL has also learned that EU Energy Commissioner Guenther Oettinger
declined an invitation to attend the groundbreaking, citing previous
commitments.

Marlena Holzner, the spokeswoman for the EU energy commissioner, says
this means that a final investment decision on South Stream -- a phase
after all designs and studies have been completed and official approvals
are in hand -- isn't even in sight.

"We have no concrete information that, indeed, the final investment
decision on South Stream has been taken already because normally, if you
use this term in a general sense, you would have different things
established before you can say it's a final investment decision,"
Holzner says. "And one is that you have the route.

"To the European Commission, it has never been communicated that there
is a final route. That means where South Stream starts, where it ends,
and which countries the exact route goes through. That has not been
done," she continues. "There is no environmental impact assessment for
the whole route. As far as we can see it, we don't regard this as a
final investment decision."

The proposed South Stream pipeline route, according to Gazprom

​​
Gazprom says South Stream will pass through Turkish waters to Bulgaria,
then continue on through Serbia, Hungary, Slovenia, and Austria to tie
in with the distribution network of the multinational Eni in northern
Italy.

Officials in Brussels say they see South Stream's current status as
moving from the "conceptual design and feasibility" stage to the
"front-end engineering and design" phase.

In the latter phase, EU legislation requires numerous tasks that need
approval from regulators in each country along the route and from the
European Commission itself.
Russia says it has concluded intergovernmental agreements needed with
each EU country involved, but the European Commission hasn't yet seen
them all.

The deadline for EU states to submit those documents to Brussels is
February 16, 2013. The commission then has nine months to assess the
agreements and raise its doubts and concerns.

A detailed plan for the entire route must be submitted to Brussels,
which also must approve environmental and social impact studies by
national regulators in each EU country.

A "transboundary assessment" is also required, with input from EU states
adjacent to the route. All studies require consultations with the
public and authorities in each country and could take more than a year
to complete.

Moreover, the offshore section of the pipeline entering Bulgaria must
undergo an EU environmental-impact study to ensure it complies with
environmental directives.

Russian-European Chamber of Commerce President Sergei Shuklin confirmed
that the December 7 ceremony at Anapa will mostly be a ribbon-cutting
affair without underwater construction activity.

"Yes, yeah, I agree with that. But it starts," Shuklin said. "Actually,
by this action, Russia showed they are serious about this project. They
are just going to make it happen. I'm pretty sure.... So they will have
the first communications with the European Commission, with the
governments of the countries participating in this project. So
everything will be concluded [according to EU legislation], especially
[since] Russia just became a member of the World Trade Organization."

So why did Gazprom rush to make its announcement?

Shuklin suggested it could be related to a probe launched in September
by the European Commission into allegations that Gazprom engaged in
anticompetitive practices in Central and Eastern Europe.

"Russia was actually surprised with the action related to Gazprom," he
said. "And so probably, one of the reasons was, 'Yeah, let's just do it
our way. We know people from the countries where we will build the pipe,
and at this point, deal less with the European Union government.'"

Robert Cutler,
a research fellow at Carleton University's Institute of European,
Russian, and Eurasian Studies in Canada, maintains that Gazprom's push
to announce the start of construction work on South Stream could also be
related to domestic politics.

"On live Russian television, [President] Vladimir Putin gave [Prime
Minister] Dmitry Medvedev a direct order: Construction of the pipeline
should begin by the end of 2012," Cutler said. "There's a certain amount
of prestige domestically invested now in producing some sort of result,
even though physical construction of the pipeline probably was not in
the cards then and certainly is not now.

"If Putin gives this order and Medvedev says, 'We'll do it,' but it
doesn't end up happening, it raises questions domestically about their
authority within the factions in the Kremlin and about Gazprom's
credibility overall internationally."

According to Cutler, another reason is to give the appearance that South
Stream is progressing faster than the Nabucco pipeline, a rival
U.S.-backed project aimed at reducing Europe's dependence on Russian gas
by linking the Caspian region and the Middle East to EU markets.

6/22/2012

Poland’s hopes of hitting a shale gas bonanza have suffered a blow as ExxonMobil ended exploration for the unconventional fuel after tests failed to find gas in commercial quantities.

The US oil major said there had been “no demonstrated sustained commercial hydrocarbon flow rates” in two test wells in eastern Poland and added that it had “completed its exploration operations in Poland”.

ExxonMobil has six concessions in Poland and it remains unclear what plans the company has for them.

The decision by ExxonMobil is the latest in a series of disappointments over Poland’s possible gas reserves.

Energy companies and the government were enticed by an estimate last year from the US Energy Information Administration, which said Poland might hold 5.3tn cubic metres of shale gas – the largest reserves in Europe.

However, a newer estimate by Poland’s government geological institute cut about 90 per cent off that, suggesting reserves of 346-768bn cubic metres.

Although the lower number is unlikely to turn Poland into a gas exporter, it would make it much less dependent on gas imports from Russia, which currently supplies about two-thirds of the 14bn cubic metres of gas the country consumes annually.Waldemar Pawlak, Poland’s economy minister, suggested that ExxonMobil became less interested in its Polish operations after agreeing last week to develop tight oil reserves in Siberia together with Rosneft, the Russian state oil group.

“With such prospects, shale gas in Poland did not have as much meaning for [ExxonMobil],” said Mr Pawlak.

In 2009, ExxonMobil abandoned shale gas exploration in Hungary after a disappointing result from a test well.

The Polish government has handed out 109 shale gas exploration concessions around the country, and the other companies still looking for the fuel – a process that involves pumping fluids at high pressure deep underground to fracture rock, releasing trapped oil and gas – are still optimistic about Poland’s possible deposits.

Companies active in Poland include Chevron, ConocoPhilips and Poland’s PGNiG, the former gas monopoly, as well as a host of smaller groups specialised in shale gas exploration.

“I’m a bit perplexed as to why anyone would drill just two wells and then leave,” said John Buggenhagen, exploration director for Aim-quoted San Leon Energy, which has concessions near the Baltic coast, as well as in the west and south of the country.

“We believe it will take dozens of wells to explore just a small area. San Leon believes Poland has huge potential.”

One of the earliest tests came from 3Legs Resources, the UK-based independent that was the first operator to drill and test two shale wells near the Baltic coast where it found “encouraging” quantities of gas, although the flow rates were less than expected.

Mikolaj Budzanowski, the treasury minister, estimates that the first commercial shale gas extraction should begin in 2014-2015, with about 0.5 to 1bn cubic metres coming to market initially, with production eventually ramping up to 5bn-10bn cubic metres a year.

Poland has been one of the most enthusiastic backers of shale gas in the European Union, while other countries such as France, Romania and Bulgaria have instituted moratoriums on shale exploration for environmental reasons.